Ratio Analysis
The following information concerns two competitors, Albertson Ltd. and Celtic Corp.
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Balance Sheets
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Albertson
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Celtic
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ASSETS
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Cash and marketable securities
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$
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79,580
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$
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152,594
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Accounts receivable
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45,477
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81,233
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Inventory
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213,210
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47,326
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Net capital assets
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212,290
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222,290
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Total assets
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$
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550,557
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$
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503,443
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Short-term bank loans
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$
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60,146
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$
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22,032
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Accounts payable
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61,276
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24,360
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Accruals
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39,028
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20,278
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Long-term debt
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102,116
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143,555
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Common shares
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201,826
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195,408
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Retained earnings
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86,165
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97,810
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Total liabilities and shareholders' equity
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$
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550,557
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$
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503,443
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Income Statements
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Sales
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$
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771,201
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$
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817,666
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Cost of goods sold
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620,954
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671,782
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Gross margin
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150,247
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145,884
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Selling and administrative expenses
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56,276
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66,290
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Amortization
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27,014
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26,632
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Miscellaneous expenses
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8,919
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14,228
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EBIT
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58,038
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38,734
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Interest on short-term debt
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6,015
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2,040
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Interest on long-term debt
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12,945
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14,016
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EBT
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39,078
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22,678
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Taxes
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8,770
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5,632
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Net income
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$
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30,308
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$
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17,046
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Calculate the financial ratios for both firms required to answer each of the following questions. Show all your calculations and explain your answer.
a. To which firm would you, as a credit manager or short-term lender, be most likely to approve the extension of short-term trade credit or grant a short-term loan?
b. To which one would you, as a banker, be most likely to extend long-term credit?
c. In which firm would you, as an investor, be most likely to buy shares?
d. What criteria should be applied to assess whether a ratio favourable or not?